How Many Credit Cards Should You Have?
Does having more than one credit card hurt your credit score?If you are like most people, your answer to that question is probably, “Of course it’s bad for your credit!” You imagine that, with every new card, your credit...
Does having multiple credit cards hurt your credit score? If you are like most people, your answer to that question is probably, “Of course it’s bad for your credit!” You imagine that, with every new card, your credit score will drop lower and lower until no lender would dare give you credit. Here’s a shocker: it often has the opposite effect.
Understanding how credit scores work can take some effort, but it’s worth it. Basically, having multiple credit cards can boost your score by increasing the amount of credit available to you and showing lenders that you are continuing to manage that credit responsibly.
Case in point: a consumer with a credit score of 797 opened a new card and was shocked to see that her score jumped to 819. Her spending habits did not change dramatically, so she now had more credit available to her while her “credit utilization ratio” (how much she owed compared to her total limit) decreased. Her score may have decreased a few points when she applied for the card, but it certainly rebounded after she got approved and accessed all that new credit.
Your credit score is also improved by holding credit for long periods of time. So, if you’ve had that trusty AmEx since college but it just doesn’t hold a candle to your shiny new MasterCard®, resist the urge to either cut up the older card or cancel it altogether. Your score looks at the “age” of your credit, so having an “elderly” credit line makes you look that much better. Keep your infrequently-used accounts active by buying something small every so often and paying them off in full at the end of the month. The only reason to cut up an older card is if it has an annual fee too high to justify keeping the credit line open. But if you do cut your card, don’t be surprised if your credit score goes down! Two reasons: the average age of your credit has just decreased, and your credit utilization has increased.
In addition to higher credit scores, strategic use of multiple credit cards can put free money in your pocket. Know what rewards your cards offer (you do have rewards cards, right?) and maximize them!
For example, the Bank of America® Cash Rewards credit card - $200 Cash Rewards Offer has a flexible rewards program:
- 3% - Earn 3% on the category of your choice including gas, online shopping, dining, travel, drug stores, or home improvement/furnishings for the first $2,500 in combined choice category/grocery/wholesale club purchases each quarter
- 2% - Earn 2% at grocery stores and wholesale clubs for the first $2,500 in combined choice category/grocery/wholesale club purchases each quarter
- 1% - Earn 1% cash back on all other purchases
While our partner Citi® has introduced the Citi® Double Cash Card – 18 month BT offer. Earn 2% cash back on purchases: 1% when you buy and 1% as you make payments for those purchases. Smart credit card users will realize that the card lives up to its name by, in effect, giving them twice as much from the rewards program.
Because rewards programs can change, you will want to keep an eye on which cards to use for specific types of purchases. Gasoline, groceries, restaurants, and travel are four of the most common categories in which credit card companies will entice you to use their cards with special incentives like extra cash back for a limited time. Some cards rotate categories, so you need to pay attention in order to maximize your credit card rewards.
There is one very significant caveat for this idea that having multiple credit cards is a net win: It applies to consumers who are using credit responsibly.
Holding more than one credit card at a time might not be a wise choice for you if any of the following is true:
- You regularly carry a balance instead of paying it in full every month.
- You find yourself playing the “balance transfer game” to manage your monthly payments, moving your balances from one card to another to enjoy a low- or no-interest period.
- You are already deeply in debt.
When used wisely, multiple credit cards can be very rewarding and beneficial for your overall credit score.
Explore our top credit card offers to find the card that is right for you.